National Bank of Greece S.A

Ladies and gentlemen, thank you for standing by. I'm Konstantinos, your course call operator. Welcome and thank you for joining the National Bank of Greece conference call to present and discuss the first quarter 2023 financial results. At this time, I would like to turn the conference over to Mr. Pavlos Milonas, CEO of National Bank of Greece. Mr. Milonas, you may now proceed.

Good afternoon, everyone, and good morning to those of you joining from the U.S., Welcome to our first quarter financial results call. I'm joined by Christos Christovoulou, Group CFO, Greg Papalioris, Group Head of IR.

After my introductory remarks, Christos will go into more detail on our financial performance, and then we will turn to Q&A. I think it would be useful if I begin with a brief overview of Greece's economic performance before I turn to our financial performance for the first quarter of 23. Let us begin. Greece entered the year with strong momentum from a very dynamic 2022. Recall that fourth quarter GDP increased by 5.2% year-on-year and 1.4% quarter-on-quarter seasonally adjusted. Furthermore, economic developments continued to be very positive in the first months of the year, despite the slowdown in the year-on-year and the sharp tightening of monetary policy. Employment creation remained strong, with the unemployment rate fast approaching a psychological barrier of 10%, while expectations for tourism revenues are high on the back of a sharp pickup in bookings and airport traffic. Tourism revenues should exceed the record for 2022 by a solid margin. On the fiscal side, Greece recorded a small primary surplus in 2022, overperforming strongly against the budget target for a primary deficit of 1.6% of GDP. The overall performance continued in the fourth quarter of 2023, or the first four months of 2023, I should say, with a primary surplus of 1.1% of GDP in the state budget compared with a target of a deficit of 0.3% of GDP. On the inflation front, pressures are easing at a faster-than-expected pace with a harmonized index down to 4.5% year-on-year in April on the back of falling energy at flattening food prices. Adding to the positive outlook, fixed capital formation should be strong due to the large pipeline of private sector investments and the increasing use of RRF funds. In fact, fixed investments are expected to rise at a double-digit pace for a third year in a row, driven by high capacity utilization rates, strong corporate profitability, and positive demand prospects. Overall GDP estimates are continuously being revised upward, and output is now expected to increase in the 2.5% to 3% range in 2023, with the potential for further upward revisions. With macro developments being increasingly supportive and government policies assisting the more vulnerable, the country is unlikely to experience a new wave of NPEs. nor a notable slowdown in credit demand, especially from the more dynamic corporate sector with many projects in advanced stages. Indeed, nearly halfway through 2023, it is comforting that in the case of MBG, early delinquencies remain controlled while there has not been a meaningful increase in MPEs. An additional factor has been the banking sector's initiatives to absorb part of the rate increase. These comprise support to vulnerable borrowers in the form of interest rate subsidies and rate caps regarding further increases in variable rate mortgages. Additionally, in the case of NBG, as regards overall loan pricing, we have already absorbed about 30% of the base rate increases since the beginning of the rate cycle last year. Moreover, we also introduced to market a series of flexible to fixed mortgage refinancing products. Regarding loan demand, corporate credit remained strong in the first quarter of 23. Specifically, NVG's domestic corporate performance loans were up 16% year-on-year, despite repayments of working capital facilities from corporates with excess cash. We expect demand to be significantly stronger in the second half of the year. Now to turn to the P&L results. Combining the positive economic backdrop with the results of our multi-year transformation, and the comparative advantage of our solid balance sheet, we have continued delivering strong profitability in the first quarter of 2023. Our NII continued to grow, up by 18% quarter-on-quarter to half a billion. Speed growth continued at a double-digit pace after adjusting for the impact of the deconsolidation of the merchant acquiring business. And finally, operating as well as credit costs were contained despite the inflationary environment. As a result of the strong core income growth and relatively inelastic operating costs, we have reduced our cost of core income to just 34% in the first quarter. This is an all-time low, which compares favorably across banks in Europe. Please recall that the level of this KPI was 70% only three years ago. As a result, we have delivered a core PAC of $230 million in the first quarter of 2023, which translates into a core return on tangible equity of nearly 15%. This exceeds our cost of equity for the first time in many years. Among the key components of our success remains our strong capital and liquidity positions. On the liquidity front, MBG's traditional deposit base comprises mainly of the core deposits of many small depositors, provide an important and relatively scarce advantage in a period of much tighter liquidity conditions. Indeed, our deposit mix has not changed significantly despite the higher rates, with savings and science deposits accounting for more than 80% of our total deposits. As regards capital, on the back of a strong recurring profitability, we have added a solid 90 base points of core capital in just the first quarter of 2023, driving our fully loaded